Existing literature has examined a plethora of factors that can affect the effectiveness, performance or nature of fiscal policy in an economy. In this paper we build on the fundamental tenets of micro-economic models to examine the potential ways cryptocurrencies can affect the effectiveness of a country’s fiscal policy. Our finding is that under the assumptions of an absence of uncertainties, perfectly competitive markets, household utility maximization, and usage of public money and cryptocurrency, the government purchases as well as the ability of the government to raise funds by issuing bonds and by taxation is decreasing in new investments in cryptocurrencies but increasing in the income earned from cryptocurrencies. We go further to discuss the factors that account for the sustained ability of cryptocurrencies to weaken the state’s fiscal-policy capabilities and possible ways the effects of cryptocurrencies on the state’s fiscal integrity can be mitigated.
Over the last few decades, the financing of cities has been at the heart of ongoing debates of change and deep reforms as well as major concerns in all countries where decentralization is giving an increasingly dynamic role to local governments. This article presents the role of local taxation in promoting sustainable urban development in Morocco through an empirical study of 163 actors and partners involved in cities in the regions of Casablanca-Settat and Rabat-Salé-Kénitra. The results show that to increase local taxation in Morocco, it is necessary to develop the capacity of city managers, encourage public-private partnerships, and improve the quality of spending.
Fiscal decentralization gives local governments the authority to use revenues to finance local expenditure, one of which is expenditures intended to improve the quality of human development. This study aims to analyze the effect of Local Own Source Revenue (PAD), Special Allocation Funds (DAK), and Surplus of Budget Financing (SiLPA) on the Human Development Index (IPM) through capital expenditure on districts/cities in North Sumatra. This study uses panel data consisting of time series data for 2015-2019 and cross section data for 33 districts/cities in North Sumatra. Hypothesis testing is done by multiple linear regression and path analysis. The results of the study proved that DAK and SiLPA have a positive impact on capital expenditures, while PAD has no impact on capital expenditures. Meanwhile, PAD and DAK directly have a significant positive effect on HDI, while SiLPA has no effect on HDI. In addition, PAD, DAK, and SiLPA indirectly have no significant effect on HDI through capital expenditure.
Based on the scholar’s research on the influencing factors of local government debt, this paper argues that the local government financial resources, degree of decentralization and local government investment enthusiasm in local finance are the significant factors that influence the form of local government debt. This paper also chooses the panel data of China’s 31 provinces (cities) except Hong Kong, Macao and Taiwan from 2010 to 2019, to analyze the influencing factors of local government debt scale and the relationship of local government debt scale in different regions and demonstrates the correctness of the hypothesis proposed in this paper. The analyze result shows that the local government financial resources significantly inhibit the growth of local government debt. The degree of local decentralization is an essential factor to enlarge the scale of local government debt. There is a significant positive correlation between the enthusiasm of local government investment and the scale of local government debt.
This dissertation consists of two independent essays on public economics. The first essay studies the consequences of fiscal decentralization on poverty and income inequalities. This essay describes the possible channels through which fiscal decentralization might affect poverty and income inequalities, and carries out an empirical analysis with data of a large number of countries at different stages of development, for the period 1971-2000. Fiscal decentralization is found to have significant effects on poverty and income inequalities. These findings are important because they suggest, contrary to the traditional public finance theory, that sub-national governments can play an important role in the reduction of poverty and income inequalities. The second essay studies the second best solution to the public expenditures’ problem in the presence of a proportional labor income tax. By allowing the tax base to vary with the taxpayers’ behavioral responses to taxation, we derive the “effective” budget constraint faced by the government, which describes the set of affordable combinations of public and private goods. We show that the optimal solution to the government problem corresponds to the point of tangency between the effective budget constraint and the highest attainable social indifference curve. The traditional normative prescription for public expenditures under a second-best scenario does not satisfy this condition, and therefore it provides a suboptimal solution. Finally, we use the same analytical framework in order to explain the flypaper effect, an empirical regularity that has for long challenged the conventional theory.
Decentralization is a key governance reform which many developing countries have embarked on. Local governments are expected to use their informational advantage to improve the delivery of public goods. This result implied by Tiebout’s (1956) model requires fully informed citizens who “vote with their feet.” The model’s application to developing countries has been limited, since local decisions may not be responsive to local demands. Practitioners are shifting to innovations that minimize institutional constraints so that decentralized programs can lead to improved outcomes. Examples of such innovative ways include decentralized agricultural extension programs, which embrace farmers’ empowerment, local government, and private sector participation. Few impact evaluation studies on agricultural extension have combined qualitative and quantitative methods. This dissertation contributes to the literature by applying these methods and survey data to study the impact of a decentralized extension program in Uganda, known as the National Agricultural Advisory Services (NAADS) on the value of farm production per acre. The program is non-randomly assigned to local governments and farmers self-select in or out within participating sub-counties. Using a sample of 305 participating and non-participating farmers and local government assessment indicators as instruments, we cannot reject the null that the NAADS program has had an impact. The 2SLS results show no program impact; however, the OLS results show that the program had a positive impact on the value of farm production per acre of about 20 percent. Qualitative results show that NAADS farmers: participate in local decision making processes through farmers’ institutions; have increased knowledge on farming; and practice enterprise diversification. The quantitative finding must be treated with caution; for example, the study did not account for spillover effects. The NAADS program faces challenges inherent in Uganda’s decentralized structure; particularly the low financial and human capacity, and the weak monitoring at the local level. The policy implications include: the need to strengthen farmers’ institutions; development of a marketing strategy; clear policy guidelines for local government support to NAADS; improved coordination of NAADS activities among line ministries; need for additional resources for NAADS activities; and improved capacity of service providers.
Environmental protection is a basic public service that the government must guarantee and is closely related to public health. An important driver of environmental pollution in China is the local government’s pursuit of a rapid economic development while ignoring environmental protection under the Chinese-style fiscal decentralization system. On the basis of the principal–agent theory between the central and local governments, this study analyzes the environmental deterioration caused by the distortion of local government behavior under fiscal decentralization. In addition, using China’s prefecture-level city data from 2014 to 2018, this study empirically estimates the impact of fiscal decentralization on environmental pollution. SO 2 emissions and PM 2.5 concentrations are used to measure the degree of environmental pollution. Results show that Chinese-style fiscal decentralization exacerbates environmental pollution and that the impact of fiscal decentralization on environmental pollution differs in regions with varying levels of economic development and cultural penetration. Moreover, fiscal decentralization does not significantly impact environmental pollution in eastern China and in those areas influenced by Confucian culture yet aggravates the environmental pollution in central and western China and in those areas that are not affected by Confucian culture. These results offer important policy implications. Clearly dividing the power and financial power between the central and local governments, establishing an environmental governance system compatible with economic incentives, and building an environmental public finance system can alleviate the impact of Chinese-style fiscal decentralization on environmental pollution.
Fiscal decentralization has strengthened the capacity of governments to finance and provide public goods and services. Fulfillment of local government functions helps to balance the consumers’ individual preferences according to their needs. In Ukraine, each local authority should be entrusted with the management of the lands of relevant community in compliance with the principle of ubiquity as well as with the right to collect land tax. Local taxes on real estate and transport, typical for countries with capable local self-government, have also been introduced. Global challenges, international obligations, insufficient effectiveness of modern budgetary instruments of anti-crisis regulation make the improvement of property taxation necessary. Given new economic realities and the best world practice, it is necessary to reconsider the use of tools to support and stimulate regional development. The diversity of sources of payment and objects of taxation is one of essential problems in the collection of property tax. Its solution is the differentiated application of benefits, rates, deferrals, installments or to objects of taxation (according to the degree of participation of a property in the production process), or to entities (depending on their investment, social, environmental activity in the context of sustainable development). Such approaches are extremely important given the current trends of urbanization - their application will give the property tax an opportunity to perform the function of stimulating better use of funds and distribution of net income of enterprises and households in favor of budget revenues. Property taxes are progressive for those who have low incomes and can receive discounts when paying them. The spread of this approach during the post-crisis recovery of the national economy should be facilitated by the best practices of local authorities focused on the tax potential of SMBs. The main advantage of property taxes is a high degree of stability of the tax base. Further improvement of real estate taxation in Ukraine should focus on the prospects of its use in order to form stable sources of budget revenues and de-shadowing of property relations through the establishment of property owners. However, the risks of a low level of production incentives, as well as the understatement of the tax base through the transfer of property rights, still needs considering coordinated tax regimes for legal entities and individuals.
The subject of this article is the set of economic and financial relations that develop in the process of inter-budgetary regulation and equalization of budgetary provision and balance of heavily subsidized budgets at the subnational level. The purpose of the study is to identify the degree of influence and effectiveness of the existing system of inter-budgetary regulation and fiscal decentralization in Russia in relation to heavily subsidized budgets at the subnational level in the context of their socio-economic, budgetary and financial condition and development. The methodological basis of the study is based on the Russian budgetary legislation, as well as domestic and foreign scientific studies devoted to the theory of fiscal decentralization (federalism), mechanisms for equalizing budgetary provision at the subnational level, approaches to assessing the degree of influence of fiscal decentralization on stimulating economic growth in regions and states. In the course of the study, the author applies a systematic approach, as well as general scientific and special methods: coefficient method, comparative, structural dynamic retrospective analysis. The analysis of the relationship and dispersion of the financial parameters of subnational budgets using the Pearson pair correlation coefficient, as well as the coefficients of variation and oscillation. The study reveals the problematic aspects of the effectiveness of the existing system of inter-budgetary regulation and the convergence of the socio-economic state of heavily subsidized regions in recent years. This result contradicts most budgetary practices and the theory of fiscal decentralization, which justifies the need for a qualitative change in the existing system of inter-budgetary regulation. The main conclusion of the study is that the existing mechanism of inter-budgetary regulation and the existing instruments for equalizing budgetary provision do not contribute to a significant change in the fiscal and socio-economic parameters of the development of heavily subsidized budgets at the subnational level. The nature of the use of the gratuitous aid received for this category of subjects of the country is reduced to short-term coverage of the gap in financing expenditure obligations but does not change the model of either the organization of budget regulation or the regional economy. Soft budget constraints create weak incentives and lead to financial and economic problems — increased dependency and subsidies.
The main purpose of this paper is to set a model in which there exist multiple firms producing data in a situation where each firm produces data and shares it voluntarily for new additional revenue. The model is used for theoretical examination of the revenue distribution rule and behaviors to maximize the social welfare. Consequently, the following three main results can be obtained. First, if the number of firms is sufficiently large and some conditions are assumed, the revenue distribution rule to maximize social welfare in a decentralized economy coincides with the elasticity of additional revenue with respect to the provided data. Second, if each firm maximizes profit in the decentralized economy, the firm can achieve allocations to maximize social welfare in a command optimum for any revenue distribution rule as long as the government provides the policy of lump-sum tax and subsidy appropriately. Third, if the subsidy for data sharing is financed by a flat rate tax for additional profit, each firm has an incentive to participate in the platform irrespective of the subsidy rate and revenue distribution rule.
Considered structural sectoral reforms taking place in Ukraine in the process of decentralization are aimed at forming viable territorial communities that are able to solve social problems to meet the needs of residents of administrative-territorial units, taking into account socio-economic, environmental, geographical, cultural, historical and other factors of their development. At the same time, the issues of obtaining financial results from the introduction of tax and budget decentralization, budget financing of expenditures guaranteed by the state remain relevant. Assessment of indicators in these areas will allow to determine the level of financial potential and risks for the functioning and development of spheres of life of local governments. The outlined indicators of assessing the financial capacity of local budgets are based on the analysis of budget indicators of territorial communities and aim to identify problematic issues that hinder the socio-economic development of administrative territories and the inability of local authorities to perform their own and delegated powers. Among the factors influencing the indicators of indicators of local government solvency assessment, the system of horizontal budget equalization and the methodology for determining the local budget tax capacity index need to be improved. Standardization of indicators for assessing the financial capacity of local communities will increase the effectiveness of existing methodologies for measuring them. The updated mechanism for assessing the financial autonomy and independence of local budgets is based on a deeper analysis of financial indicators of local budgets, which requires further study.
Introduction. For solving problems connected with slowing down of economic growth and declining of social welfare level, it is advisable to develop and implement state measures based on the concept of inclusive sustainable growth and forsee building an effective system of public financial management. This stipulates the necessity of improvement of budget policy, the principles of functioning of state and local budgets, inter-budgetary relations and requires detailed monitoring of the consequences of the transformation of the budget system as a result of administrative and territorial reforms and decentralization reforms.Methods. Such general and special methods as analysis and synthesis, comparison, generalization, associations, analogies and others have been used in the study. The purpose is to assess the impact of transformation processes on the functioning of state and local budgets, identifying problems and outlining prospects for improving the budget system in the context of continuation of reformation of the public financial management system.Conclusions. As a result of assessing the consequences of administrative and territorial reform and decentralization reform on functioning of the budget system, it has been found that most reform measures are aimed at improving the quality and accessibility of public services. Given the feasibility of raising the efficiency of the public financial management system, the need in the following has been proved: to develop a budget policy strategy that would take into account the key objectives of inclusive sustainable development; introduction of strategic and medium-term budget planning; improvement of program and target budgeting; increasing the financial capacity of territorial communities; development of gender-oriented and participatory budgeting; increasing the level of transparency of public finance management.Discussion lie in finding the ways of improving the functioning of the budget system in the context of continuation of reformation of the public financial management system.
This study examines the impact mechanism of fiscal decentralization on the overall efficiency, scale efficiency, and management efficiency of social housing provision in China. We find that fiscal decentralization is negatively related to the overall efficiency and management efficiency but has no impact on scale efficiency. Further, fiscal decentralization decreases management efficiency by increasing local governments' dependence on land finance. From the point of regional heterogeneity, fiscal decentralization in the Chinese eastern region has led to a significant decrease in management efficiency while that of the middle and western regions is insignificant.
Intergovernmental fiscal transfer is a pillar of fiscal decentralization initiatives in developing and transition economies. These transfers serve several functions that include: correcting the vertical and the horizontal fiscal balances, compensating or offsetting for the spill-overs or externalities between different jurisdictions, funding national priorities and administrative priorities and capacities of the national. However, SNGs in developing countries particularly in Sub-saharan Africa is struggling with fiscal decentralization initiatives due to the lowered potential of local revenue generation. Due to these gaps in studies on Intergovernmental Fiscal Transfers (IGFT) in devolved government structures, the study evaluated how IGFT is organized and structured in Kenya. The study adopted a descriptive design and undertook a review of publicly available data which was supported by interviews of selected directors from the budget, finance and planning departments in three county governments of Baringo, Kiambu and Vihiga. The study established that intergovernmental fiscal transfers make up 87 per cent of SNG revenues, equalization fund is about 2 per cent while own source revenues make up 10 per cent. Other revenue sources are conditional transfers in form of ad hoc and cost-reimbursement approaches from both the national government and development partners. Regarding intergovernmental fiscal transfers, the national government should disburse funds in a timely and efficient manner to enable county governments to fulfil their mandates. The study makes the following conclusions; there is an overreliance on intergovernmental fiscal transfers by SNGs and this might constrain their capacity to provide services and impede devolution initiatives; the formula-based unconditional grant in Kenya offers great prospects for devolution and the rise in unconditional transfers portends well for SNGs. The study recommends that SNGs speed up the legal mechanism for identifying and classifying and assigning local revenues, the national government should consider introducing or substituting fiscal transfers with the tax-sharing arrangement to incentivize revenue diversification among SNGs and lastly, SNGs should consider pooling of resources to incorporate special purpose vehicles for sub-national government borrowing. The study contributes to the existing knowledge by delving more into the elements of fiscal decentralization and in particular intergovernmental fiscal transfers. Recommendations for further studies include studies on how other elements of decentralization impact the performance of the counties, how decentralization is improving governance at the local level and how the East African Community may affect governance and service delivery at the sub-national levels.
Recent administrations in Korea have greatly emphasized the importance of decentralization and autonomous local governments. However, numerous efforts on decentralization have not been accompanied by adequate level of fiscal decentralization. Some critiques have long claimed that local governments are not equipped with enough financial independence or autonomy to deliver preferred services. Some others have challenged this claim, accusing local governments on potential waste of financial resources and local administration capacities, with no significant improvement in public service performance. This research analyzes fiscal decentralization in terms of taxation and expenditure. It empirically investigates whether decentralized taxation and decentralized expenditure affect public service performance in Korean local governments. Based on an assortment of data on local government finance and public service performance, the analysis shows that decentralized taxation and decentralized expenditure have positive effects on a local government performance when either one of them was included in the model. In contrast, in the research model that included both variables, the effect of decentralized taxation on the government performance was not statistically significant. Meanwhile, the positive effect of decentralized expenditure was statistically significant. Results show that decentralized expenditure does not necessarily hinder local government performance, contrary to many concerns. It is advised that administrations in Korea emphasize decentralized expenditure more than decentralized taxation. Decentralized expenditure does not hinder local government performance, and thus the government should continue to promote it to resolve imbalances across local governments.
Fiscal decentralization is widely recognized to bring leaders and decisions makers closer to the citizens resulting in better delivery of public services. Underperformance in the revenue collection has a significant effect on the ability of the sub-national governments (SNGs) to deliver services to its citizens. Due to these challenges, this study sought to examine the state of the local revenue decisions among sub-national(county) governments with a focus on Kiambu, Vihiga and Baringo Counties in Kenya. The study was descriptive in nature and used interviews with purposefully directors from budget, finance and planning departments and secondary data collected from Commission on Revenue Allocation (CRA) and Kenya National Bureau of Statistics (KNBS). Data obtained was analyzed thematically and descriptively. The analysis shows that the revenue collection by the SNGs in Kenya have increased marginally since the establishment of the devolved structures but have stagnated when they are adjusted for inflation. The revenue collection figures of the SNGs are underperforming and are drawn from a relatively small base. User charges, business licenses and property tax are the main revenue bases contributing about 86 per cent with user fees contributing more than half of the revenues. The effective own source revenue (OSR) to budget funding indicates that six counties can fulfil the requirements for devolution of at least 10 per cent effective OSR to budget. This scenario impeded the attainment of the objectives of devolution and increases dependence on fiscal transfers. The study recommends the following; the county governments should give realizable estimates of local revenues, improve on the management and control of the current revenue bases and lastly integrate new revenue bases. The study contributes to the existing knowledge by delving more into the elements of revenue decentralization and recommends further studies on how other elements of revenue decentralization impact the performance of the subnational governments in sub-Saharan Africa
Decentralization of infrastructure responsibility to subnational governments and the immense needs of infrastructure financing argue for expanding subnational borrowing responsibly. India, Indonesia, the People's Republic of China, and the Philippines embarked on developing their subnational debt market at differing paces and progresses. The transition to market-based financing is path dependent, requiring sequencing of reforms. Moral hazard is inherent in subnational borrowing for both borrowers and lenders. Subnational borrowing also intertwines with the intergovernmental fiscal system, which prescribes the division of spending, revenues, and deficit financing among tiers of government. Linking borrowing to debt-service revenues and allowing fiscal space for subnational government borrowing are paramount. The challenges facing subnational governments from COVID-19 are similar to those from other macroeconomic shocks. A long-term view is required as to the allocation of fiscal space between sovereign and subsovereign. Financial transparency is key as markets need to digest comprehensive information to appropriately price risks.
Abstract In the last three decades, many Asian democracies have decentralized their political systems to promote the democratic, equal, and efficient distribution of national resources across regions. Nonetheless, most of these countries, including South Korea, are still in a stage of “partial fiscal decentralization,” in which locally elected officials have spending authority, while a significant portion of their financing relies on transfers from the central government. This article argues that the decentralized distribution is significantly influenced by the partisan interests of central and local governments. The central government transfers more funds to local governments that their co-partisans govern, and local incumbents follow partisan policy priorities to obtain the allocation of available fiscal resources. This argument is strongly supported by the empirical analysis of subsidy transfers and regional social expenditures in South Korea from 2002 to 2015. First, we find that the central government in Korea transfers larger subsidies to politically aligned regions. Second, regional governments with larger subsidy transfers have higher levels of social expenditures. Third, governors or mayors affiliated with a progressive party spend significantly more on social welfare and education than do those affiliated with a conservative party.
We develop a model of property taxation and characterize equilibria under three alternative taxation regimes often used in the public finance literature: decentralized taxation, centralized taxation, and “rent seeking” regimes. We show that decentralized taxation results in inefficiently high tax rates, whereas centralized taxation yields a common optimal tax rate, and tax rates in the rent-seeking regime can be either inefficiently high or low. We quantify the effects of switching from the observed tax system to the three regimes for Japan and Germany. The decentralized or rent-seeking regime best describes the Japanese tax system, whereas the centralized regime does so for Germany. We also quantify the welfare effects of regime changes.
Introduction. Modern pandemic threats, military-political tensions and conflicts, foreign economic risks, trade wars, financial imbalances encourage the EU countries to group and agglomerate financial potentials in the vertical and horizontal planes. There is a need to study the paradox of what role in this agglomeration is played by the mastery of using the principles of fiscal federalism, tested by a number of both unitary states and federal republics of the European continent. The purpose of the article is to monitor the main determinants of fiscal federalism in increasing the financial potential of the member states of the European Union. Method (methodology). In the course of the research, the following methods were used: dialectical, correlational, generalization, comparison, system analysis, observation, induction and deduction. The results. The article highlights the importance and place of fiscal federalism in the architecture of the financial policy of the European Union. Pragmatic aspects of financing public services in the member states of the European Union have been studied. This made it possible to identify active recipients in the field of attracting financial resources to ensure the priority needs of economic development. It is emphasized that the functional direction of general public spending in the European Union was aimed more at social protection and health care, and to a lesser extent at environmental protection and development of the housing and communal sphere. It has been established that most of the member states of the European Union combine the principles of centralization, federalism, and decentralization (in most cases) in their fiscal doctrine, but there are also clear systems of classical fiscal federalism (Germany, Switzerland). The European approach emphasizes that a secondary effect of globalization is excessive tax optimization, because the functioning of the integrated market makes tax evasion more attractive. An assessment of the influence of key parameters of fiscal federalism on the functioning of centralized and decentralized models of financial policy was carried out. This made it possible to identify the level of influence of the determinants of fiscal federalism on the relevant model through the prism of distinct factors. It is summarized that the use of determinants of fiscal federalism in the financial policy of the European Union is able to strengthen the budgetary and tax effects, which in the final (transformed) vector will lead to a strengthening of the economy and improvement of social standards both in the member states of the union and in individual municipal entities.
Under the fiscal decentralization system, China has implemented a central and provincial management system. Colleges and universities are divided into central and local colleges and universities. At present, local higher education is facing the dilemma of insufficient investment. The reasons are mainly reflected in three aspects: first, the inherent defects of China's fiscal decentralization system restrict the attention of local governments to the higher education needs of local residents; Second, the speed of local economic development can not keep up with the rapid development of the scale of local higher education, resulting in the lack of financial resources for local governments to invest in higher education;, The third is the game of local governments in the direction of financial investment under the fiscal decentralization system, which leads to the reluctance of local governments to invest funds in the field of higher education. We believe that in order to alleviate the plight of insufficient investment in local higher education, we should promote the decentralization reform of higher education investment system; The local government should establish a scientific view of political achievements, improve the understanding of the importance of higher education, and speed up the financial allocation to local colleges and universities; Mobilize non-public resources to invest in local higher education and broaden the financing channels of local colleges and universities.